First Internet Bancorp Q4 2024 Earnings Report

First Internet Bancorp EPS Results

• Actual EPS: $0.41
• Consensus EPS: $0.92
• Beat/Miss: Missed by -$0.51
• One Year Ago EPS: N/A

First Internet Bancorp Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $24.88 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

First Internet Bancorp Announcement Details

• Quarter: Q4 2024
• Date: 1/22/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 23, 2025
• Conference Call Time: 2:00PM ET

First Internet Bancorp (NASDAQ:INBK) operates as the bank holding company for First Internet Bank of Indiana that provides commercial, small business, consumer, and municipal banking products and services to individuals and commercial customers in the United States. The company accepts non-interest bearing and interest-bearing demand deposit, commercial deposit, savings, money market, and Banking-as-a-Service brokered deposit accounts, as well as certificates of deposit. It also offers commercial and industrial, owner-occupied and investor commercial real estate, construction, residential mortgage, home equity, line of credit and home improvement, small installment, term, and other consumer loans, as well as single tenant lease financing, and public and healthcare finance; franchise finance; and small business lending. In addition, the company is involved in the purchase, manage, service, and safekeeping of municipal securities; and provision of public and municipal lending and leasing products to government entities. Further, the company offers corporate credit card and treasury management services. First Internet Bancorp was founded in 1998 and is headquartered in Fishers, Indiana.

First Internet Bancorp Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, everyone, and welcome to First Internet Bancorp's 4th Quarter and Full Year 2024 Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. And please note that today's event is being recorded. I would now like to turn the conference over to Ben Berkowitz, Financial Profiles Inc.

[Operator]

Ben, please go ahead.

[Ben Brodkowitz, SVP - Investor Relations at Financial Profiles, Inc]

Thank you, Jenny. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's 4th quarter and year end 2024 financial results. The company issued its earnings press release yesterday afternoon, and it is available on the company's website at www.firstinternetbancorp.com. In addition, the company has included a slide presentation that you can refer to during the call. You can also access these slides on the website.

[Ben Brodkowitz, SVP - Investor Relations at Financial Profiles, Inc]

Joining us today from the management team are Chairman and CEO, David Becker and Executive Vice President and CFO, Ken Lubbock. David will provide an overview of the quarter and 2024 and Ken will discuss the financial results. Then we'll open up the call to your questions. Before we begin, I'd like to remind you that this conference call contains forward looking statements with respect to the future performance and financial condition of First Internet Bancorp that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements.

[Ben Brodkowitz, SVP - Investor Relations at Financial Profiles, Inc]

These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward looking statements made during the call. Additionally, management may refer to non GAAP measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non GAAP measures. At this time, I'd like to turn the call over to David.

[David Becker, Chairman & CEO at First Internet Bancorp]

Thank you, Ben, and good afternoon, everyone. Thanks for joining us today for the Q4 and full year 2024 results. Our 2024 results reflect a year of remarkable growth. We entered 'twenty five with a strong momentum. We produced significantly improved financial results marked by a recovery in net interest income and net interest margin.

[David Becker, Chairman & CEO at First Internet Bancorp]

We generated strong loan growth while we focus on optimizing the composition of our interest earning assets. Furthermore, our SBA lending business had an outstanding year that drove non interest income substantially higher year over year and allowed us to achieve greater revenue diversification. To summarize some of the key achievements for the year, net income and diluted earnings per share tripled compared to 2023 at $25,300,000

[David Becker, Chairman & CEO at First Internet Bancorp]

versus $2.88

[David Becker, Chairman & CEO at First Internet Bancorp]

respectively. Net income of $87,400,000 was up 17%. Gain on sale revenue was up more than 60% fueling non interest income growth of 81% from 2023. Total adjusted revenue growth of almost 30% far outpaced the increase in expenses creating significant annual positive operating leverage. On the balance sheet, we grew balances by $330,000,000 an increase of 9% over 2023, which we attribute to strong growth in construction, investor commercial real estate and small business lending.

[David Becker, Chairman & CEO at First Internet Bancorp]

We also produced continued strong deposit growth, which allowed us the balance sheet flexibility to pay down a significant amount of Federal Home Loan Bank borrowings, while also maintaining a solid liquidity position. The loans to deposit ratio is relatively consistent with the prior quarter and is indicative of continued flexibility as we continue to optimize both sides of the balance sheet throughout 2025. I would note that many of these year over year trends were evident in our performance for the Q4, which I'll now discuss in a little more detail. If you're following along on the presentation, quarterly highlights are on Slide 3. It is only fitting that we would cap off a year with so much activity with a busy quarter.

[David Becker, Chairman & CEO at First Internet Bancorp]

With a number of moving parts that impacted our results, our core business continued several of its upward trends. We drove an 8% increase in net interest income, making this our 5th consecutive quarter of growth in net interest income, notably a 5 basis point improvement in net interest margin. Even as the Federal Reserve rate cuts impacted the yield on new loan originations, the yield on the overall portfolio increased 3 basis points from the 3rd quarter. The impact of the rate cuts was even more pronounced on deposit costs, which declined 17 basis points. At $24,700,000 on a FTE basis, net interest income for the Q4 of 2024 was up 17% compared to the Q4 of 2023.

[David Becker, Chairman & CEO at First Internet Bancorp]

We remain confident that net interest income and net interest margin will continue to trend higher throughout 2025 as we experience the full impact of the 2024 Fed rate cuts on deposit costs and continue to improve the composition of the loan portfolio. Additionally, our balance sheet flexibility will allow continued opportunities to optimize our funding costs as higher cost wholesale funding and CDs mature. Another positive trend is the continued strong performance of our small business lending team. As I noted earlier, gain on sale of SBA guaranteed loans is a critical component of our non interest income. Loan originations in this line of business were strong, up over 2% compared to the prior quarter, which had previously been a quarterly record for us.

[David Becker, Chairman & CEO at First Internet Bancorp]

Consequently, SBA gain on sale revenue, while strong on a historical basis, dipped slightly this quarter. Decline was really more of a timing issue as a large portion of the originations were closed during the second half of December and there is a lag between closing the loan and being able to sell it in the secondary market in order to complete the necessary post closing activities. So while we didn't get to record revenue from those loan sales in the Q4, the upside is we're very well positioned for a great start to the 2025 or gain on sale revenue. Turning to the earnings for the quarter, we reported net income of $7,300,000 up 5% and diluted earnings per share of $0.83 up 4% from the 3rd quarter's reported results. As I mentioned earlier, we had some moving parts that impacted the quarter's results.

[David Becker, Chairman & CEO at First Internet Bancorp]

1st, in connection with paying down Federal Home Loan Bank borrowings, we recognized $4,700,000 of prepayment and terminated interest rate swap gains. When adjusting for this activity, revenue for the quarter totaled $34,800,000 an increase of almost 3% from the Q3 and 28% from the Q4 of 'twenty three. This marks the 6th consecutive quarter of increase in total revenue. During the quarter, we took steps to address certain problem loans and recognized $9,400,000 of net charge offs, most of which related to the SBA portfolio. As a result, net charge offs to average loans totaled 91 basis points.

[David Becker, Chairman & CEO at First Internet Bancorp]

I would note that approximately $3,400,000 of these charge offs were related to loans that already had existing specific reserves. As with most small business loans, the issues with these credits were borrower specific and not driven by any particular industry or geography and nor are we seeing any significant trends of stress with certain industries or regions. We had certain problem credits in various stages of workout where the outlook for a positive outcome was becoming less likely. So we made the decision to charge these loans off and help de risk the portfolio going forward. Our overall credit quality remained sound.

[David Becker, Chairman & CEO at First Internet Bancorp]

Nonperforming loans to total loans were 68 basis points. Nonperforming assets to total assets were 50 basis points at the end of the quarter. The increase in nonperforming loans was due to additions in franchise finance and small business lending as we took action to get in front of some potential loans. Despite the increase in non performing loans, our asset quality metrics still compare favorably to all of our peers and we have adequate resources on our loan servicing and special assets team as well as the processes in place to address any loans showing a sign of stress. At the moment, we have specific reserves on about 30% of the total non performing loan balance.

[David Becker, Chairman & CEO at First Internet Bancorp]

Another high level point before I move on and that is an update on our FinTech partnership business. We told you at this time last year that we did not plan for rapid growth in the number of sponsor programs in 2024. We focused instead on nurturing the relationships we had already entered into amid challenges in the bank FinTech partnership space, this turned out to be a prudent decision. I'm pleased to report we have seen growth on both sides of the balance sheet and in non interest income as well. I believe the partnerships between chartered institutions and solution focused innovators is critical to the evolution of financial services.

[David Becker, Chairman & CEO at First Internet Bancorp]

Without it, customers would still be standing in teller lines to cash checks and get their savings passbooks updated. We are committed to exploring relationships with partners that advance the financial services landscape and doing so in a way that creates value for our shareholders. On the topic of shareholder value, I'll make one last point on this slide and that is how keenly we monitor tangible book value per share as a key measure of our focus on shareholder value. Despite the sizable increase in intermediate and long term interest rates during the quarter, tangible book value per share only experienced a slight decline and it's up nearly 6% on a year over year. Since 2018, our tangible book value per share is up more than 55%, which reflects our commitment to operational discipline and diligent balance sheet management through some very challenging periods for the industry.

[David Becker, Chairman & CEO at First Internet Bancorp]

We like you, our shareholders in First Internet Bank. Turning to Slide 4, I've already made some high level comments about our lending activity. I'm proud of the work our lending teams did over the quarter to produce strong loan growth of 13% on an annualized basis. Virtually all of our lines of commercial lending experienced growth with balances up almost $140,000,000 from the 3rd quarter or 17% on an annualized basis. Our small business lending team has been a key driver in our efforts to reposition the loan portfolio and diversify our revenue streams.

[David Becker, Chairman & CEO at First Internet Bancorp]

For the full year 2024, SBA loan originations totaled almost $540,000,000 up 45% over 2023 with solid loan volume also up 45% year over year, demonstrating the measurable impact we can make by providing growth capital to entrepreneurs and small business owners across the nation. Following strong production in the 4th quarter, retained balances increased 11% compared to the linked quarter. Our small business pipeline remains robust and with the staffing investments we have made, we are targeting $600,000,000 of SBA loan originations for 2025 and we are proud to be ranked as the 8th largest SBA 7 lender in the nation for the SBA's 2024 fiscal year. The growth of our SBA business also drove a significant increase in non interest income for the year, which comprised 1 third of total adjusted revenue, up from 26% in 2023. Our construction and investor commercial real estate team had another solid quarter, originating over $70,000,000 of new commitments and the aggregate construction and investor commercial real estate balances increased $81,000,000 as we experienced strong growth activity on existing commitments.

[David Becker, Chairman & CEO at First Internet Bancorp]

At quarter end, total unfunded commitments in our construction line of business were $480,000,000 As these projects progress, draws on these loans in the upcoming months combined with the optionality to deploy excess liquidity to hold a portion of our SBA originations on our balance sheet that will play a meaningful role in the continued shift of our loan portfolio towards higher yielding variable rate loans. With a more favorable interest rate environment, our single tenant lease financing team had an active quarter originating almost $40,000,000 of new loans which translated into solid loan growth of $18,000,000 over the linked quarter. Additionally, our public finance team had a solid quarter with balances up $23,000,000 over the 3rd quarter as it capitalized on some high quality shorter duration opportunities with attractive tax equivalent yields. On the consumer side, small business the consumer side total balances were down as expected as declines in residential mortgage and home equity balances more than offset growth in our specialty consumer line where originations were down due to seasonal factors. We focus on the super prime borrower and our consumer lending and rates on new production were in the mid to low 8% range.

[David Becker, Chairman & CEO at First Internet Bancorp]

Furthermore, delinquencies in these portfolios remained extremely low at 10 basis points of total consumer loan. I'm proud of the performance our lending teams turned in to finish the year strong. I'm proud of the work that all of the employees at First Internet Bank put in to deliver 12 months of improving performance and a 5 quarter streak for growth in net interest income and net interest margin expansion. Combined with the ongoing investments we've made in small business lending, we remain confident in the earnings momentum we have built. Entering 2025, we are well positioned with solid liquidity and capital levels and asset quality metrics that compare favorably to peer institutions, all the while continuing to optimize both sides of the balance sheet and further diversifying our revenue streams.

[David Becker, Chairman & CEO at First Internet Bancorp]

Our team is committed to delivering strong earnings, growth and net interest margin expansion that will create meaningful value for our shareholders in the years ahead. Now I'd like to turn the call over to Ken. Thanks David. As David covered the loan portfolio, let's turn

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

to Slides 56 where I will cover deposits in more detail. The average balance of deposits increased almost $344,000,000 or 8% during the quarter and period end deposits were up $135,000,000 or 3% from the prior quarter driven primarily by growth in FinTech partnership deposits. Non maturity deposits were up $122,000,000 or 6%, reflecting the increase in FinTech partnership deposits. Additionally, total deposits from our FinTech partners were up 27% from the 3rd quarter and totaled $643,000,000 at quarter end. During the Q4, we submitted a notice of reliance on the primary purpose exemption with the FDIC related to FinTech deposits that had been classified as brokered and as of December 31, we reclassified these deposits to interest bearing demand deposits.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

During the Q4, these partners generated almost $16,000,000,000 in payments volume, which was up 38% from the volume we processed in the Q3. Total FinTech partnership revenue was $880,000 in the Q4, which was up over 14% from the linked quarter. Related to CD activity during the quarter, CD balances were relatively stable with balances increasing only $22,000,000 over the quarter. Although medium to longer term treasury rates increased during the Q4, we held CD pricing constant through most of the quarter and further lowered CD rates in December following the Fed's rate cut that month. We originated $242,000,000 in new production and renewals during the Q4 at an average cost of 4.23% and a weighted average term of 12 months.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

These were partially offset by maturities of $238,000,000 with an average cost of 5.01%. Similar to last quarter, new CD production is coming on at lower rates than those maturing, which will continue to benefit our cost of funds going forward. Looking forward, we have $414,000,000 of CDs maturing in the Q1 of 2025 with an average cost of 5.06 percent and $351,000,000 maturing in the Q2 of 2025 with an average cost of 4.95%. So for the next several quarters, we expect a continued positive pricing gap between new production and maturing CDs. For example, January month to date new CD production has been at an average cost of 4%, which is a positive spread of 106 basis points over the weighted average cost of CDs maturing in the Q1.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Moving to Slide 6, at quarter end total liquidity remained very strong reflecting cash and unused borrowing capacity of 2 point $2,000,000,000 We deployed a portion of the elevated liquidity we had at the end of the 3rd quarter supplemented by continued deposit growth during the quarter to pay off a significant amount of Federal Home Loan Bank borrowings and a smaller amount of maturing brokered CDs as well as to fund loan growth and securities purchases. As part of paying down certain structured FHLB advances, we were able to capitalize on favorable embedded prepayment features as well as pay down structures hedged with interest rate swaps. We structured these borrowings prior to the Fed tightening cycle and as a result, the positions had significant mark to market gains at the time of termination. In total, we recognized $4,700,000 of gains on the repayment of $200,000,000 of FHLB advances during the quarter. With total deposit balances increasing 3% and loan growth of $135,000,000 or 3%, loans to deposits ratio was relatively unchanged at 84.5% from the end of the 3rd quarter.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

At quarter end, our cash and unused borrowing capacity represented 173 percent of total uninsured deposits and 2 22% of adjusted uninsured deposits. Turning to Slide 7 and 8. Net interest income for the quarter was $23,600,000 $24,700,000 on a fully taxable equivalent basis, up 8.2% and 7.9% respectively from the 3rd quarter. The yield on average interest earning assets declined to 5.52% from 5.58% in the linked quarter due primarily to a 54 basis point decrease in the yield earned on other earning assets, which are predominantly cash balances impacted by the Fed's rate cuts, but partially offset by a 3 basis point increase in the yield earned on loans. The higher yield on the loan portfolio combined with higher average loan balances produced solid top line growth in interest income increasing almost 4% compared to the linked quarter, which far outpaced the increase in interest expense.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

As a result, net interest income was up over 8.2% from during the quarter, building on last quarter's increase and further distancing us from the low point in the Q3 of 2023. Net interest margin for the Q4 was 1.67% and 1.75% on a fully taxable equivalent basis, both representing 5 basis point increases compared to the linked quarter. The net interest margin roll forward on Slide 8 highlights the drivers of change in fully taxable equivalent net interest margin during the quarter. The yield on funded portfolio originations was 7.26 percent in the 4th quarter, down from 8.85% in the 3rd quarter, which reflects the 100 basis points of fed rate cuts in September, as well as a larger volume of originations in fixed rate portfolios, which are priced at lower spreads over U. S.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Treasuries, but are still significantly higher than the current all in yield on

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

the loan

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

portfolio. Pipelines remain solid, especially in the construction and small business lending lines of business and our focus on improving the composition of our loan portfolio gives us further confidence that net interest income will continue to increase in future quarters. Related to deposits, looking at the graph on Slide 8 that tracks our monthly rate on interest bearing deposits against the Fed funds rate, you can see that our deposit costs are beginning to trend down along with the decline in Fed funds. At quarter end, we had $1,400,000,000 of deposits indexed to Fed Funds, which when combined with the $765,000,000 of CDs maturing over the next two quarters and an additional $200,000,000 of higher cost broker deposits maturing at the end of the Q1 are expected to drive further net interest income growth and provide a strong catalyst for net interest margin expansion. Turning to non interest income on Slide 9.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Non interest income for the quarter was $16,000,000 up $3,900,000 or 32.5 percent from the 3rd quarter. As I previously mentioned, non interest income included $4,700,000 of prepayment and terminated interest rate swap gains related to the pay down of Federal Home Loan Bank advances. Excluding these gains, adjusted non interest income was $11,200,000 down 7% from the 3rd quarter. Gain on sale of loans totaled $8,600,000 for the quarter, down from $9,900,000 in the prior quarter. Loan sale volume was $106,700,000 down 16% quarter over quarter, while net gain on sale premiums increased 30 basis points from the 3rd quarter.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

As David mentioned in his comments, the decline in loan sale volume was mainly due to timing. We originated $167,000,000 of SBA loans during the quarter, an increase of 2% over the linked quarter with over a third of those closing late in the quarter. The decline in gain on sale revenue was partially offset by higher net loan servicing revenue, which totaled $1,400,000 for the quarter due to growth in the servicing portfolio and a lower fair value adjustment to the servicing asset. Moving to Slide 10, non interest expense for the quarter was $24,000,000 up $1,200,000 from the 3rd quarter. The increase was driven in part by higher compensation costs due to staff additions in small business lending, risk management and information technology as we continue to invest in key areas of our business.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Additionally, other non interest expense was up due to seasonal expenses and deposit insurance premium increased due to year over year asset growth. Turning to asset quality on Slide 11. David covered several of the major components of asset quality for the quarter in his comments, so I will just add some commentary around the allowance for credit losses and provision for credit losses. The allowance for credit losses as a percentage of total loans was 1.07 percent at the end of the 4th quarter, down 6 basis points from the 3rd quarter. The decrease in the allowance for credit losses reflects a decline in specific reserves related to charged off SBA loans as well as the net charge off activity David discussed earlier, partially offset by qualitative adjustments to the small business lending ACL and overall loan growth.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

At quarter end, the small business lending ACL to unguaranteed SBA loan balances was 5.7%. Additionally, at a higher level, if you exclude the balances and reserves on our public finance and residential mortgage portfolios, which have lower coverage ratios given their lower inherent risk, the allowance for credit losses represented 1.27 percent of loan balances. Provision for credit losses in the 4th quarter was $7,200,000 compared to $3,400,000 in the 3rd quarter. The increase in the provision for the 4th quarter reflects the elevated net charge off activity, the qualitative adjustments to the small business lending ACL and overall growth in the loan portfolio, partially offset by the decline in specific reserves and adjustments to qualitative factors and other portfolios. Moving to capital on Slide 12, our overall capital levels at both the company and the bank remained solid.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

The tangible common equity ratio was 6.62 percent, an increase of 8 basis points from the 3rd quarter as a smaller balance sheet more than offset the impact of higher interest rates on the accumulated other comprehensive loss. If you exclude other accumulated other comprehensive loss and adjust for normalized cash balances of $300,000,000 the adjusted tangible common equity ratio would be 7.4%. From a regulatory capital perspective, the common equity Tier 1 capital ratio remains solid at 9.3%. Before I wrap up, I would like to provide some commentary on our outlook for 2025. While the market may be pricing in a rate cut or 2 over the course of the year, we are sticking with our conservative approach and assuming Fed funds and other short term rates remain constant through 2025.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

When looking at the estimates for full year 2025, I think the consensus earnings per share number is within the range we are forecasting for next year. However, how we get to that range is a little different than what the current models are projecting. We expect loan yields to increase as we continue to originate new production at rates well above the current portfolio yield. We also expect deposit costs to continue declining as one the last 2 Fed rate cuts get fully incorporated into quarterly run rates 2, the significant CD repricing gap on over $0.75 of $1,000,000,000 of CDs maturing over the next 6 months and 3, the pay down of higher cost broker deposits at the end of the Q1. Assuming loan growth in the range of 10% to 12% for the year and deposit growth in the range of 5% to 7%, we expect that annual net interest income will increase in a mid-thirty percent range over 2024 and fully taxable equivalent net interest margin will increase throughout the year and should be in the range of 2.20 percent to 2.30 percent by the Q4 of 2025.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

If the Federal Reserve were to begin reducing short term interest rates, our net interest income and net interest margin would likely exceed these projections. With regard to non interest income, as our SBA team continues to grow and deliver consistently higher origination activity, we expect annual core non interest income to be up in the range of 9% to 12% over 2024. A potential risk to this forecast will be loan sale pricing in the secondary market. While gain on sale premiums are currently attractive, if pricing were to soften, it may make more economic sense to hold a loan yielding 10% or more versus selling for a premium far below the annual spread income we would earn. Looking at the provision for credit losses, with quarterly provisions higher than what we have experienced on a historical basis, we are taking a conservative approach in our forecast for 2025 and are modeling an annual provision that is in the range of 15% to 20% higher than what we recognized in 2024.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

And finally, from a non interest expense perspective, we added a number of personnel throughout 2024 growth in small business lending as well as in risk management and information technology. And with the planned growth in SBA originations and the continued investments in key areas of our business, we do expect compensation expense to increase in 2025. All in, we expect annual non interest expense to be up in the range of 10% to 15%. One additional point I would like to make, when looking at the quarterly earnings per share estimates for 2025, I think the distribution might be off a little. While the total for the year is in the range due to seasonal factors and the time that it takes CD repricing to work its way through our to work its way through, our forecast is a little lighter in the 1st and second quarters of the year and a little higher in the back end of the year.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

With that, I will turn it back to the operator so we can take your questions. Jenny?

[Operator]

Thank you. And your first question is from Brett Rabatin from Hovde Group. Your line is now open.

[Brett Rabatin, Director of Research at Hovde Group]

Hey, good afternoon, guys. Wanted to start on the asset quality cleanup and then any color that you can provide on the SBA charge off and just what you're seeing in the SBA portfolio generally and your guidance for provisioning to be 15% higher in 2025, that's probably 45, 46 basis points. Are you expecting some continued charge offs in the SBA portfolio?

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

I guess maybe let's just start with our assumption on increased provisioning for the year. I mean, I think is over the last several years as the SBA business has grown, there have been more charge offs and more provisioning. Certainly, you have just growth in the overall portfolio. We're reserving at a higher rate on those loans. And the charge offs are certainly higher in those than say single tenant or others.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

So I think we've just seen a higher run rate over the last couple of over the last 4 to 6 quarters of that. And I think we're just kind of going to take a conservative approach and hopefully we're provisioning more than what we need. But I think we'd rather just be conservative in our forecast and add a little bit to that is again keep in mind that the portfolio is going to continue to grow and we have bumped up just the overall ACL coverage there. So there's a piece of that driving that as well.

[Brett Rabatin, Director of Research at Hovde Group]

Okay.

[Brett Rabatin, Director of Research at Hovde Group]

And then on the cleanup, what that entailed and you had the one specific charge off that had allocated reserves, but was just trying to get a little more color on what you were seeing in the SBA portfolio. I know that the credit trends in SBA for the industry have been a little softer, but I know everybody kind of does things differently and the rules changed 2 years ago on underwriting. Just any thoughts on the SBA portfolio as you see it from a credit perspective?

[David Becker, Chairman & CEO at First Internet Bancorp]

I'll take that one, Brett. In the SBA portfolio, actually in the bank in total, there is absolutely nothing going on that causes me to lose any sleep at night. As you just stated, the SBA world is a little tougher right now. We've analyzed the top to bottom underwriting loan issues, looked at everything. The only real as Nicole likes to continually say, every loan is a snowflake.

[David Becker, Chairman & CEO at First Internet Bancorp]

It's one of a kind. There is no seam. We don't have any concentration in a state and a product and anything out there is just kind of one off. The only thing that is somewhat of a common denominator, about half of our delinquent accounts have some kind of ties to the hurricanes that blew through the country last year through Florida and up through to North Carolina. They're having problems getting things rebuilt, restructured, catching up or losing 2 to 3 months of income, etcetera.

[David Becker, Chairman & CEO at First Internet Bancorp]

As you well know too in the SBA world, they bend over backwards to assist the small business owners. So SBA does a lot of things. So we're working through some of those mechanics. We're not as familiar as some of the processes. As Ken said, it takes longer to get through things to both on the sales side as well as recovery side and well as the collection.

[David Becker, Chairman & CEO at First Internet Bancorp]

So we took advantage in the 4th quarter looking at some of the loans. We might get some recovery. We might not get recovery. We were doing okay on earnings. And we just wanted to set a clean stage for going into 2025.

[David Becker, Chairman & CEO at First Internet Bancorp]

Ken said we bumped up reserves a little bit because if you looked at our credit history for the last 5 years, we've done more outside of the Wahoo experience we had in early 2023. We charge off more loans over the past year than we probably have in the last 3 or 4 years put together outside of Wahoo. But the bottom line is the SBA even with those charge offs in the Q4 we made $4,000,000 more in SBA at the bottom line than we did a year ago. And I think that's kind of watching the market reaction to today. I get a little perturbed when peers are out here selling 100 of 1,000,000 of bad not bad security, solid security, the low rate security is taking 1,000,000 of dollars of hit.

[David Becker, Chairman & CEO at First Internet Bancorp]

And in a 3 to 4 year payback, we get a little aggressive knock down a few loans to really set the stage for a great 2025 and we get beat up in the marketplace and their stock goes up. It doesn't make a lot of sense to me what's going on out here. But yes, it's there's nothing fundamentally wrong. We have some of the best videos and people in the country in the SBA world. We built out a phenomenal team over the last 3 or 4 years.

[David Becker, Chairman & CEO at First Internet Bancorp]

And we think it's just a hell of a great opportunity for us going forward. There will be more losses than we're used to seeing and there's more work that goes with it because of all the rules and regulations at SBA. But it's a very diversified solid portfolio and we're going to keep the pedal to the metal and keep it moving forward.

[Brett Rabatin, Director of Research at Hovde Group]

Okay. And I didn't hear lastly from me, I just got a bunch of questions, but I'll just ask this last one, hop back in the queue. You did $540,000,000 of SBA in $24,000,000 and I heard I think I heard the fee income guidance for 9% to 12%. What are you assuming for production for SBA for 2025? And then I didn't quite understand what you you're implying the gain on sale could create some variability in that, but didn't quite get what you were assuming for gain on sale margins.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Yes. Well, two things, Brett. We're assuming $600,000,000 of originations next year. Right now, our gain on sale net premiums have been in the range of say $108,000,000 on average, probably maybe a little bit higher. But in our forecast, we're assuming $108,000,000 And then the one piece I said that could be variable, Brett, is that if the gain on sale premiums have been a little we've seen volatility in those over the past 18 months.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

And again, if we say gain on sale premiums dropped to say 106 and we got a loan that's prime plus 275 that's a solid loan, we may just elect to keep that on the balance sheet versus selling it. So that would be again, it's the volatility and gain on sale premiums could be a risk to gain on sale income should we choose to hold the loan. Okay.

[David Becker, Chairman & CEO at First Internet Bancorp]

As Ken stated, we carry forward into January where $60,000,000 in production from December, sold that here over the last couple of weeks and we again did net that $108,000,000 We had one loan that came in at $106,000,000 and we just kept it on the books. There was no reason to sell it in the market. So and all of that appears to be stable as we well know President stating today that he's going to force us to drop interest rates and blow everything up. It could change at a moment's notice, but we're pretty comfortable that as Ken stated we are not forecasting any additional rate so that should stabilize somewhere in that low 108 range and carry forward for the balance of the year. That's what we built into our budget.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Okay. Appreciate all the color guys.

[David Becker, Chairman & CEO at First Internet Bancorp]

Thank you.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

All right. Thanks, Brett.

[Operator]

Thank you. Your next question is from Tim Switzer from KBW. Your line is now open.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Hey, good afternoon. Thank you for taking my questions.

[David Becker, Chairman & CEO at First Internet Bancorp]

Hey, Tim. Hey, Tim.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

I have a follow-up on the commentary around credit performance, particularly for the SBA. Are there any specific industries that you're seeing a little bit more pressure or types of borrowers at all?

[David Becker, Chairman & CEO at First Internet Bancorp]

No, not at all. As I stated a minute ago, we've analyzed that portfolio 6 ways to Sunday and trying to see if there's a common theme, if there's a common broker, if there's a common BDO, if there's a common underwriter, if there's a common anything. And outside of about half of the loans having some kind of impact due to the hurricane issues, there is no common denominator. So, I'll take it back. One thing that did kind of show up for the loans we originated during COVID that were either had real estate components or pretty heavy build outs where they got delayed.

[David Becker, Chairman & CEO at First Internet Bancorp]

They couldn't get supplies. They couldn't get team. They ate up a lot of their excess working capital and cash with that 12, 18 month delay. And so some of those folks we're working with today to try and help them get back on their feet. But outside of the hurricane and outside of the issues related to the pandemic and most of those were people that had significant build outs or physical building construction in order to get open.

[David Becker, Chairman & CEO at First Internet Bancorp]

There is we can find no common denominator. So it really is just as Nicole says snowflakes that sometimes they work and sometimes they melt. So right now it seems to be stabilizing. We're not seeing anything really crazy going on, but time will tell. That's why we're being conservative in the reserves a little bit.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. Okay. And what I guess what impact do you see looking forward on the outlook from like the rate environment if rates are higher for the longer? How do you see that impacting your SBA borrowers and I guess the rest of your credit portfolio as well?

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

We've looked at that in terms of the rate environment. If you think about like when we've gotten into SBA, right. I mean, we've really experienced our strong growth in beginning in 2020, little bit 2021 and more 2022, 2023, 2024. We've been originating in a high rate environment to begin with. We're doing credit, we do interest rate stress testing and underwriting where you're shocking rates up 200, 300 basis points to make sure there's good debt service coverage and they're still working capital.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

So a lot of our loans have been originated in the high rate environment to begin with. So we've gotten 100 basis points of relief thus far. It's not when you do the math on an average loan balance and you look at what a 25 basis point decrease or a 50 basis point decrease is. It's not on a monthly basis. On a monthly P and I basis, not really a significant amount.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

So I mean, we haven't really none of the I would say any of the charge offs we've experienced have been due to high rates.

[David Becker, Chairman & CEO at First Internet Bancorp]

I don't think there's going to be any impact in our client base and or our numbers if it holds steady. What would impact us and I think would totally demoralize a lot of our commercial accounts is if the rates start to go up. If inflation blows up for whatever reason and the Fed makes a move the other way that could have some significant impact. And it's not us, it's going to

[David Becker, Chairman & CEO at First Internet Bancorp]

be the whole industry.

[David Becker, Chairman & CEO at First Internet Bancorp]

But I think as long as it stays stable, there's kind of a light at the end of the tunnel. As Ken said, 100 point decrease last year is a couple of $100 a month maybe on a loan payment. But it was positive news, inflation is coming down, employment is going up, consumer is still spending day in and day out. The real economic news is pretty solid and folks think there's a chance. Nobody is losing hope today.

[David Becker, Chairman & CEO at First Internet Bancorp]

But I would tell you the one to watch is if it turns and the Fed has the bump rates then that could be a different story, but not only for us for everybody in the industry.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thank you. The last question I had was in regards to your FinTech deposits, obviously very good trends this quarter and the last few quarters. Can you provide some commentary on like how much of that deposit growth in some of the revenues being driven by current customers you've had, versus new onboardings? And then, can you give us an update on kind of the pipeline you see and what kind of customers you're looking to bring onboard?

[David Becker, Chairman & CEO at First Internet Bancorp]

Yes. I think that on the FinTech space, a couple of things out there as we discussed several times here. We had a good core component of FinTech customers. We have some folks a little irritated with us that the onboarding process instead of being 60 days, it's been 6 months to get through all the regulatory issues and stuff. I think we discussed a couple of calls back that after our spring exam last year, we finally got the working guidelines from the regulators of what they want us to do and how they interpret, I still call it BSA whatever it is AML something or the other nowadays.

[David Becker, Chairman & CEO at First Internet Bancorp]

We've got great customers that are growing significantly, literally all the growth here over the past year. For example, in 2023, we finished the year $1,000,000 in the whole on the BaaS division. We added expenses and staff, quadrupled some of the staff, almost $1,000,000 increase in expenses related to past this year, yet the earnings slipped to positive $1,200,000 at the end of the year. So we made a $2,500,000 swing in earnings and we added up staff. We've got a great team.

[David Becker, Chairman & CEO at First Internet Bancorp]

We've got some really solid clients that are really starting to grow. We've got a young lady on the West Coast. We just doubled down her card opportunities. So we should see some I would be remiss if we don't wind up doubling tripling even quadrupling that $1,000,000 earnings could end up being $4,000,000 in earnings by the end of this year just with the folks we have. We have a good pipeline.

[David Becker, Chairman & CEO at First Internet Bancorp]

We have good opportunities out here. But with all the noise in the industry from Synapse and all the problems there, we're being extremely cautious. There are a lot of people running for the hills in the banking world as well as the FinTech world. So we want to make sure we're not taking on somebody else's problem. So our due diligence which was very tough everybody tells us compared to peers to begin with has gotten even tougher.

[David Becker, Chairman & CEO at First Internet Bancorp]

So we think we're going to have significant growth and we could have exponential growth in a couple of them. But we're not going to go out just because the market is frothy now and sign up somebody else's problem. So we're in it. We're going to stay in it. And we're going to grow it.

[David Becker, Chairman & CEO at First Internet Bancorp]

And we think there's a heck of a future for us in the fintech space.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Nice. That sounds great. Thank you for all the color. Appreciate it.

[Operator]

Thank you. Your next question is from Nathan Race from Piper Felder. Your line is now open.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Hey, guys. Good afternoon. Hey. Not to beat a dead horse on the SBA front, but just thinking back to the call in October, it seemed like SBA delinquencies kind of peaked over the course of the summer. So some of the charge offs that we saw this quarter, a little surprising.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

So just curious if you can shed any additional light in terms of what occurred between now and then to necessitate these charge offs and the elevated provisioning? Was it more so just around getting some updated financials from clients? Or any other light you can shed on that would be appreciated.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Well, part of it yes, I mean, part of it was like as we referenced, we of the large charge offs, dollars 3,400,000 of that had to do with loans we already had reserves on whether in full or in part. Some of those were borrowers that we're trying to work towards some kind of resolution help whether it's a sale of the business pending or trying to get something like that done where it just became evident that the outlook wasn't going to be as optimistic as we would have little bit higher than usual, a tell. We had probably maybe a little bit higher than usual, a number of maybe perhaps a borrower who had a deferral and a lot of times they come off a deferral and their business is back and they get back to making payments and probably had a little bit higher number than one would expect this quarter where they came off deferral and just really business was struggling. And it's all, as David mentioned before, he used the term snowflakes. A lot of it is just really everything is borrower specific.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

No common theme, no geography, no industry. It really just seemed like it's just kind of more than what we had usually seen in the past.

[David Becker, Chairman & CEO at First Internet Bancorp]

One of the things we did Nate over the last few months and like I said earlier, we analyzed that portfolio to death. We've had outside reviews of the portfolio. We wanted to make sure we hadn't missed something that we didn't have fundamentally a bad decision maker, a bad referral source, a bad BDO and it all came out spotless and clean. So it is just a factor of the industry right now as one of our peers much larger SBA shop than us announced some pretty tough numbers last night, this morning. It is what it is in the industry.

[David Becker, Chairman & CEO at First Internet Bancorp]

We were on the right path. Everything was smooth for months months on end and it got a little bit sideways. But with the earnings component that's coming with this product on gain on sale, on servicing, on all the revenue, the interest side of things, even taking that pop, if you remember back in early 2023 when we took a $9,000,000 hit, we ended up the quarter with a $5,000,000 loss. We sucked up this hit and improved the earnings Q4 over Q3. So we had the luxury of taking getting a little aggressive on calling some of the stuff and just getting it out of the way.

[David Becker, Chairman & CEO at First Internet Bancorp]

And that's what we opted to do. And what we have I can guarantee you, we will have more SBA losses over the course of the next year. I hope they're not $9,000,000 every quarter. But I will tell you with the growth play, if it turned out to be $9,000,000 every quarter next year, we're still going to put another $10,000,000 to $15,000,000 to the bottom line. So it's built into the pricing.

[David Becker, Chairman & CEO at First Internet Bancorp]

It's built into the structure. And as I said earlier, I'm not losing any sleep that there's anything fundamentally wrong with SBA or any of the other assets we have on the books.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Got it. That's really helpful. I'm familiar with some other SBA lenders and typically normalized charge offs for them in this business is anywhere between 30 to 40 basis points a quarter. Is that how you guys are thinking about the future charge off trajectory?

[David Becker, Chairman & CEO at First Internet Bancorp]

Yes. Shame on us. As Ken said, we had already reserved $3,000,000 in the second and third quarter on a couple of loans and trying to this is our first experience on the bad side of the SBA, figure it out. We should have just popped some of those earlier on. And that's exactly what I think is going to happen is be in that 30, 40 basis point range going forward.

[David Becker, Chairman & CEO at First Internet Bancorp]

We might we got one guy that has a couple of 2, 3 businesses. We could be steep. I don't think we're going to be $9,000,000 here in the Q1. But yes, we anticipate leveling off spot on in that 30 to 40 basis point. We've taken a little extra provision on our numbers going forward just to be safe.

[David Becker, Chairman & CEO at First Internet Bancorp]

But yes, we think that's a good play to work with.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

And that's just 30 to 40 basis points of the SBA portfolio itself, not the entire portfolio?

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Exactly. Exactly.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Got you. Just turning changing gears, thinking about the margin trajectory for this year. I appreciate the guide around 220, 230 coming out

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

by the Q4.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Just curious in terms of kind of the cadence to get to that margin. Do you think it's more kind of first half loaded just given some of the CD repricing that Ken described earlier? Just any thoughts on kind of the progression of the margin over

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

the course of this year?

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Yes. Well,

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

it's I think the Q1 is going to be a little tricky to see that because what we really get a nice pop is in the Q2 when we pay down some very expensive brokered and start getting again at some of the timing of the CD maturities. Well, those will start to kick in more in the Q2 and certainly in the back end of the year. Like I said, Q1, I mean, we're expecting a nice increase in the Q1, but sometimes that's a little bit tricky to pin down. That range is a little bit wider. But I really think we'll get a nice one in the Q2 and then kind of in the back end of the year.

[David Becker, Chairman & CEO at First Internet Bancorp]

Ken said earlier and I think all of you guys have averaged out somewhere around $4.20 in earnings for next year. We think that's a very achievable number probably starting somewhere in that low mid-0.80 dollars range here in the Q1 and working up. And in calendar year 2025, we're going to be we're going to pop it by another $13,000,000 $14,000,000 in earnings over $24,000,000 So we're not changing anything on the overall side. We did not expect to have interest rate decreases last year. That's helping us.

[David Becker, Chairman & CEO at First Internet Bancorp]

So we're more than confident we can keep the earnings trajectory as we thought it was going to be in 2025. If we don't have the losses that we think we might have in SBA then the bottom line gets even better. So being from the Midwest, we're a little more conservative than most folks. We're not going to sit here and tell you we're going to whack $5 a share, but I can tell you with the 4 bucket kind of where you guys have us today, as Ken said, some of the parts in between are moving a little maybe from what your model showed at the beginning of 2023, but it's 2024 is going to be a great year for us.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Okay. 2020. Got it.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Really appreciate the color guys. Thank you.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

All right. Thanks, Nate.

[Operator]

Thank you. Your next question is from George Sutton from Craig Hallum. Your line is now open.

[George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Thank you. You did call out franchise finance in terms of the provisions or at least the delinquencies. Can you just give us a little bit more of a picture there? Is that still a program you're planning to continue to grow quite a bit?

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

No. I mean, we obviously we got about a $500,000,000 portfolio there. It has grown quite a bit over the last several years. I think we've with other when you think about allocating capital and growth in SBA and some other things going on, our growth there is will probably be pulled back significantly from what you've seen in prior years. I mean, I think year over year balances were actually down.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

We've probably seen a little bit we've certainly seen a little bit of increase in the non performers there as we've tried to get in front of certain franchisees that have been struggling. And our team is working very closely with our partner on that. But I mean, we're probably doing, I don't know, call it maybe $6,000,000 to $8,000,000 a month of new originations there, probably the amount of originations that are offsetting pay downs in the portfolio. But just again, it's nice yields. It's been a nice earnings contributor to us.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

But it's obviously one part of a much bigger pie.

[David Becker, Chairman & CEO at First Internet Bancorp]

I will tell you, George, the folks at Apple Pie and working with our team they changed and made some comments I think in the last earnings call or the call before about servicer and having some of the issues. They have a new servicer. Our team is in constant contact with them. We're starting to see a light at the end of the tunnel on that one. As Ken said, their volume is off a little bit.

[David Becker, Chairman & CEO at First Internet Bancorp]

We're still buying. We won't see tremendous growth. And quite honestly, we have some better channels right now. But the relationship between us and Apple Pie and their customer base has really come a long ways in the last 90 days. So we're not really worried about the portfolio.

[David Becker, Chairman & CEO at First Internet Bancorp]

There are things there. You got a store that's operating particularly some of these smaller coffee shops. And you got an owner that thought they were going to make a $250,000 a year working 6 hours a day and they're slugging it out at 12, 14 hours a day and making $40 and they just give it up. So that's a little bit on human nature, but we've reserved for it. We're working with them and we just have we're getting to the table with people that are going south much earlier in the game and we're able to help them.

[David Becker, Chairman & CEO at First Internet Bancorp]

And I will tell you the franchisors are stepping up as well. They don't want a bad reputation in the market. So they're finding other services and players and people to help or take over stores. And when we're in there early on we can do that before it becomes a crisis and everybody wins in the end.

[George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC]

So David, just one other question. If you've been paying attention to the news, we days ago entered a new golden age. I'm curious what you think that means broadly defined for your opportunities. Are you seeing a legitimate increase in enthusiasm demand for growing businesses and loans. Just curious your thoughts there.

[David Becker, Chairman & CEO at First Internet Bancorp]

I haven't seen any impact from the golden age yet. But what I can tell you and again maybe it's just back to kind of being in the Midwest. You're located here in the Midwest. Hopefully you're seeing the same thing. What I love about being part of the Midwest and that being our home base, we don't go to extremes one way or the other.

[David Becker, Chairman & CEO at First Internet Bancorp]

We don't get appreciation in property values and prices like other areas of the country do, but we don't get the depreciation when things fall apart. It's not as tough. We don't get the upside, but we don't have the wild crazy downside. So I think we and all of our businesses across the line outside of SBA and the super growth that's going on in SBA is over the last 2 or 3 years we just put a hell of a team of people together there. We have some of the best highest producing BDOs in the country that because of our consistency and our focus on

[David Becker, Chairman & CEO at First Internet Bancorp]

the market and

[David Becker, Chairman & CEO at First Internet Bancorp]

call it Midwest values that we do what we say we're going to do and we get it done timely. Our business is just pretty rock solid and consistent. We're not expecting any massive spikes nor are we expecting any massive problems. So yes, we had that discussion a little earlier this morning. If you heard some of the stuff that was being discussed in Davos this morning that the world is oil is going to go down.

[David Becker, Chairman & CEO at First Internet Bancorp]

We just that's noise. We don't pay much attention to it.

[George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Got you. Thanks for the thoughts. Thank you.

[Operator]

Thank you. Your next question is from John Rodis from Janney. Your line is now open.

[John Rodis, Director - Banks & Thrifts at Janney Montgomery Scott]

Hey, good afternoon guys.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Hey, John.

[John Rodis, Director - Banks & Thrifts at Janney Montgomery Scott]

Hey, Ken, first off, just the tax rate we should use for 25?

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

Yes. I think as you if you think about the earnings trajectory on a quarterly basis for next year, we have nice kind of similar to this past year in 2024 kind of a nice stair step up in terms of earnings except we're at a much higher level. So from our perspective on a quarterly basis, looking at a tax rate of say maybe somewhere in the Q1 of 9% ranging up to about 16%, 17% at the end by Q4. That's the way we're looking at it. So I guess on average, you're 13% to 14% for the year.

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

So that's kind of the way that we're modeling it right now.

[John Rodis, Director - Banks & Thrifts at Janney Montgomery Scott]

Okay. Thanks, Ken. And then, Ken, just to clarify, I think you said on fee income year over year growth of 9% to 12%. Yes. Would that as far as the base for 2024s, is the base with or without the gains in the Q4 of $4,700,000

[Kenneth Lovik, Executive VP & CFO at First Internet Bancorp]

It's without the gains. So back out the gains that gets you to say $42,600,000 and then go off of that.

[Operator]

There are no further questions at this time. I will now hand the call back to David Becker for the closing remarks.

[David Becker, Chairman & CEO at First Internet Bancorp]

Thank you, Jenny, and thanks everybody for joining us on today's call. As said, we wrapped up 'twenty four with some strong performance. We're entering 'twenty five with a lot of great momentum and a lot of backlog in business and opportunity. We're highly optimistic about the future outstanding performance of the lending teams along with emerging opportunities through the FinTech and other partnerships positions us to greater more diversified revenue growth. We have the wind at our backs with a more favorable interest rate environment and an improving business climate.

[David Becker, Chairman & CEO at First Internet Bancorp]

Adding all that together creates a great foundation to build on and deliver stronger earnings and profitability in 2025 and going forward. As fellow shareholders, we remain dedicated to maximizing shareholder value. We appreciate all your ongoing support and wish you a pleasant afternoon. Thank you.

[Operator]

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

Participants

Executives

• David Becker, Chairman & CEO
• Kenneth Lovik, Executive VP & CFO

Analysts

• Ben Brodkowitz, SVP - Investor Relations at Financial Profiles, Inc
• Brett Rabatin, Director of Research at Hovde Group
• Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)
• Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies
• George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC
• John Rodis, Director - Banks & Thrifts at Janney Montgomery Scott